INDIA NIVESH LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 3692/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7960 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 31-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CIRCUMSTANCES OF CASE; BAD IN LAW UNDER FACTS
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.3692/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2009-10 INDIA NIVESH LIMITED, 601, 602 SUKH SAGAR, N.S. PATKAR MARG, GIRGAON CHOWPATTY, MUMBAI 400007 VS.` DY. COMMISSIONER OF INCOME TAX-5(2) MUMBAI. PAN:- AAABCI6743E APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 9.4.2012 OF CIT(A) FOR THE A.Y. 2009-10. THE ASSESSEE HAS RAISED FOLLO WING GROUNDS IN THIS APPEAL:- 1. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF LD. CIT (A) - 9, MUMBAI DATED 28.12.2012 IS ARBITRARY, PERVERSE AND BAD IN LAW. 2. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) - 9, MUMBAI HAS ERRED IN : ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI SANJAY JHANWAR & SHRI RAMKUMAR PUGALIYA REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SHRI SUNIL AGARWAL. DATE OF HEARING 22.07.2014 DATE OF PRONOUNCEMENT 13.08.2014 INDIA NIVESH LIMITED, 2 | P A G E A. CONFIRMING THE DISALLOWANCE OF RS. 2,47,84,000/- U/S 14A OF THE ACT. B. CASTING THE ONUS UPON THE APPELLANT, INSTEAD OF THE REVENUE, TO ESTABLISH THE NEXUS BETWEEN INTEREST FREE FUNDS AND INVESTMENTS. C. NOT APPRECIATING THAT THERE ARE SUFFICIENT INTER EST-FREE FUNDS WITH THE APPELLANT AND IN SUCH CASE THE PRIMARY PRESUMPTION WOULD BE T HAT THE INVESTMENTS WERE FROM SUCH INTEREST FREE FUNDS AND NOT FROM THE INTE REST BEARING BORROWED FUNDS. D. NOT APPRECIATING THAT THE APPELLANT ITSELF HAD N OT CLAIMED, AND CAPITALIZED THE INTEREST EXPENDITURE INCURRED ON SHARES ACQUIRED OU T OF BORROWED FUNDS DURING THE RELEVANT YEAR. E. NOT APPRECIATING THAT MAJOR INVESTMENTS OF THE A PPELLANT ARE IN ITS SUBSIDIARIES FOR THE PURPOSE OF ACQUIRING CONTROLLING STAKE AND INTEREST PAID ON BORROWINGS, IF ANY, MADE FOR ACQUIRING CONTROLLING STAKE IN SUBSID IARIES IS AN ALLOWABLE BUSINESS EXPENDITURE U/S 36(1)(III) OF THE ACT. F. RELYING UPON THE OVERRULED DECISIONS OF THE HON' BLE MUMBAI TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT AND DHANUKA & SONS VS. CIT INSTEAD OF THE FOLLOWING DECISIONS OF THE HON'BLE JURISDICTIONAL H IGH COURT: GODREJ & BOYCE MFG. CO. LTD. V. DCIT. (2010) 328 ITR 81 (BOM) CIT VS. K. RAHEJA CORPORATION PVT LTD (BORN) MANU /MH/ 1020/2011 G. NOT CASTING THE ONUS ON THE REVENUE TO ESTABLISH OBJECTIVE SATISFACTION REGARDING THE INCORRECTNESS OF THE APPELLANT'S CLAI M WHILE HOLDING THAT APPELLANT'S CASE IS COVERED BY SECTION 14(2) & 14(3 ) OF THE ACT. H. NOT APPRECIATING THAT DIVIDEND INCOME IS NOT INC LUDED IN THE TOTAL INCOME OF THE ASSESSEE MERELY TO MITIGATE DOUBLE INCIDENCE OF TAX SINCE SUCH DIVIDEND SUFFERS INCIDENCE OF INCOME TAX AT THE TIME OF DIST RIBUTION U/S 1150 OF THE ACT AND FURTHER THE INCOME FROM SALE OF INVESTMENTS IS INCL UDIBLE IN TOTAL INCOME. I. NOT APPRECIATING THAT EVEN WHERE INVESTMENTS ARE MADE IN SHARES FUNDED PARTLY BY BORROWINGS, THE INTEREST ON THE BORROWING S CANNOT BE DISALLOWED U/S 14A IF NO TAX-FREE DIVIDEND HAS BEEN RECEIVED ON TH E SAID SHARES. J. TAKING THE ENTIRE AMOUNT OF INVESTMENT INTO CONS IDERATION FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S 14A READ WITH RULE 8D, INCLUDING THE INVESTMENTS FROM WHICH NO INCOME IS BEING EARNED AN D THE INVESTMENTS THE INCOME OF WHICH IS NOT EXEMPT FROM TAX, WHEREAS THE PRESCRIBED FORMULA PROVIDES FOR TAKING THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME. INDIA NIVESH LIMITED, 3 | P A G E K. NOT TAKING INTO CONSIDERATION THE ERRORS IN COMP UTATION OF DISALLOWANCE UJR 8D AS POINTED OUT BY THE APPELLANT IN THE SUBMISSIONS AND REVISING THE SAID ERRONEOUS COMPUTATION. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS APPEAL, HOWEVER, THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION IS, W HETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS. 2,47,84,000/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT R.W.R 8D OF THE INCOME TAX RULES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A NON BANKING FINANCE COMPANY (NBFC), ENGAGED IN THE BUSINESS OF SECURITY BROKING, COMMODITY BROKING, CURRENCY FUTURES, DEPOSITORY BUSINESS, CORPORATE FINANCE & I NVESTMENT CONSULTING, ASSET MANAGEMENT, INVESTMENT RESEARCH, INSURANCE BROKING A ND SALE OF NON PERFORMING ASSETS (NPAS) ETC. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME BEING LOSS OF RS. 1,68,21,930/-. IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE MADE INVESTMENT IN THE SHARES AND SECURITI ES WHICH HAS BEEN INCREASED DURING THE YEAR FROM 31.69 CRORE TO 49.49 CRORES. THE ASSE SSEE EARNED DIVIDEND INCOME OF RS. 29, 077/- WHICH WAS CLAIMED EXEMPT U/S 10(33) OF TH E INCOME TAX ACT. THE ASSESSING OFFICER FURTHER NOTED THAT DURING THE YEAR THE ASSE SSEE MADE INVESTMENT IN THE SHARES OF M/S RESEARCH MINES AND MINERALS LTD., AMOUNTING TO RS. 779.62 LAKHS AND INTEREST RELATING TO SUCH INVESTMENT AMOUNTING TO RS. 58,47, 166/- WAS CAPITALIZED WITH THIS INVESTMENT . THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER THE PROVISIONS OF SECTION 14A OF THE ACT, IT WAS REQUIRED ON THE PART OF THE ASSESSEE TO DISALLOW THIS INTEREST EXPENDITURE. INSTEAD OF DOING SO THE ASSESSEE CAPIT ALIZED THE SAME WITH THE INVESTMENT THAT WOULD RESULT REDUCTION OF CAPITAL GAIN AT THE TIME OF SALE OF INVESTMENT. THUS THE ASSESSING OFFICER OBSERVED THAT THE CAPITALIZATION OF THE INTEREST TO THE INVESTMENT WOULD RESULT INTO AVOIDANCE OF DUE AND LEGITIMATE T AX. THE ASSESSING OFFICER THEN INDIA NIVESH LIMITED, 4 | P A G E COMPUTED THE DISALLOWANCE UNDER RULE 8D BY CONSIDER ING THE OPENING AND CLOSING BALANCES OF THE BORROWED FUND AS WELL AS THE OPENIN G AND CLOSING BALANCE OF INVESTMENT AS SHOWN IN THE BALANCE-SHEET AND FURTHER THE DIFFER ENCE OF THE INTEREST RECEIVED AND PAID WAS CONSIDERED BY THE ASSESSING OFFICER AS TH E INTEREST EXPENDITURE DIRECTLY RELATING TO THE INVESTMENT ACTIVITY OF THE ASSESSEE . THUS THE ASSESSING OFFICER DETERMINED THE INTEREST EXPENDITURE OF RS. 167.17 L AKHS BEING THE DIFFERENCE BETWEEN THE INTEREST PAYABLE AND INTEREST RECEIVED AS DIREC T EXPENDITURE FOR INVESTMENT ACTIVITY. FURTHER THE BALANCE INTEREST EXPENDITURE HAS BEEN A PPORTIONED BY APPLYING RULE 8D AND ARRIVED AT 121.37 LAKHS. THE ASSESSING OFFICER HAS A LSO MADE DISALLOWANCE UNDER RULE 8D(2)(III) REGARDING ADMINISTRATIVE EXPENSES OF RS. 17.77 LAKHS. THUS AFTER REDUCING THE INTEREST AMOUNT OF RS. 58.47 LAKHS NOT DEBITED TO TH E P&L ACCOUNT BY THE ASSESSEE, THE ASSESSING OFFICER HAS MADE A NET DISALLOWANCE U/S 1 4A TO THE TUNE OF RS. 247.84 LAKHS. 4. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESS ING OFFICER BEFORE THE CIT(A) BUT COULD NOT SUCCEED AS THE CIT(A) HAS CONFIRMED THE D ISALLOWANCE MADE BY ASSESSING OFFICER. 5. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEES INVESTMENT AS ON 31.03.2009 WAS RS. 39.39 CRORES, WHEREAS THE ASSESSEES OWN FUND IS RS. 2418 CRORES AND BORROWE D FUND IS RS. 45.21 CRORES, THEREFORE, TO THE EXTENT OF THE ASSESSEES OWN FUND , THE INTEREST EXPENDITURE CANNOT BE DISALLOWED U/S 14A IN RESPECT OF THE INVESTMENT IN SHARES. THE LD. AUTHORIZED REPRESENTATIVE HAS FURTHER SUBMITTED THAT OUT OF TH E TOTAL INVESTMENT OF RS. 39.39 CRORES, THE INVESTMENT IN THE SUBSIDIARY COMPANY IS RS. 23.11 CRORE. THEREFORE, TO THIS EXTENT OF THE INVESTMENT IN THE SUBSIDIARY NO DISAL LOWANCE CAN BE MADE U/S 14A IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE CASE OF GARW ARE WALL ROPES LTD. VS. ACIT DATED 15.01.2014 IN INCOME TAX ACT NO. 4957/MUM/2012. HE HAS FURTHER SUBMITTED THAT IF THE INVESTMENT MADE IN THE SUBSIDIARY IS EXCLUDED THEN THE DISALLOWANCE MADE BY THE INDIA NIVESH LIMITED, 5 | P A G E ASSESSEE ITSELF OF RS. 58.47 LAKH IS MORE THAN THE D ISALLOWANCE DETERMINED UNDER RULE 8D. HE HAS FURTHER SUBMITTED THAT THE ASSESSING OFF ICER HAS MADE DOUBLE DISALLOWANCE OF INTEREST BY BIFURCATING THE TOTAL INTEREST EXPEN DITURE INTO TWO PARTS WITHOUT GIVING THE FINDING THAT A PARTICULAR BORROWED FUND HAS BEEN US ED BY THE ASSESSEE FOR THE PURPOSE OF INVESTMENT . THUS THE LD. AUTHORIZED REPRESENTA TIVE HAS SUBMITTED THAT THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSEE OF RS . 58,47,166/- IS SUFFICIENT FOR DISALLOWANCE U/S 14A. 6. AS REGARDS THE ADMINISTRATIVE EXPENSES, THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION THE INVESTMENT MADE IN THE SUBSIDIARY COMPANY AND, THEREFORE, TO T HAT EXTENT THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES IS NOT JUSTIFIED. THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE ONLY EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF EARNING DIVIDEND INCOME IS DMAT ACCOUNT CHARGES AND NO OTH ER EXPENDITURE. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO RELIED UPON THE SERIES OF DECISIONS IN SUPPORT OF HIS CONTENTION AND SUBMITTED THAT WHEN THE BORROWED AND ASSESSEES OWN FUNDS ARE AVAILABLE IN MIXED PULL OF FUND THEN IT CANNOT BE P RESUMED THAT THE INVESTMENT WAS MADE FROM THE INTEREST BEARING FUND WHEN THE ASSESS EES OWN FUNDS ARE AVAILABLE. THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THA T FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D THE INVESTMENT OTHER THAN THE SUBSIDI ARY INVESTMENT HAS TO BE TAKEN INTO CONSIDERATION. 7. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSING OFFICER AND CIT(A) HAS GIVEN A FINDING OF FACT THAT THE ASSESSEE HAS MADE FRESH INVESTMENT DURING THE YEAR UNDER CONSIDERATION AND ALSO BORROWED FUNDS DURING THE YEAR UNDER CONSIDERATION WHICH HAS DIRECT RELATION WITH THE INVESTMENT MADE BY THE ASSESSEE. FURTHER EVEN IF IT IS CONSIDERED THAT THE BORROWED FUND IS USED FOR THE BUSINESS PURPOSE OF THE ASSESS EE THEN THE INTEREST RECEIVED BY THE INDIA NIVESH LIMITED, 6 | P A G E ASSESSEE IS MUCH LESS THAN THE INTEREST PAID, THERE FORE, THE BALANCE AMOUNT OF THE INTEREST HAS TO BE ATTRIBUTED TO THE INVESTMENT MAD E BY THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE THE INVESTMENT OF RS. 8.38 CRORE DURING THE YEAR UNDER CONSIDERATION WHICH IS OTHER THAN TH E SUBSIDIARY OF THE ASSESSEE, THEREFORE, THE SAID INVESTMENT OF RS. 8.38 CRORE IS SUBJECTED TO THE PROVISIONS OF SECTION 14A. WE FURTHER NOTE THAT DURING THE YEAR UNDER CON SIDERATION THE ASSESSEES LOAN BALANCE HAS INCREASED BY RS. 7.04 CRORE AND THE OPE NING BALANCE OF THE ASSESSEE IN THE CASH AND BANK ACCOUNT IS ONLY RS. 23,55,000/-. THERE FORE, IT IS CLEAR THAT PRIMA FACIE , THE ASSESSEE HAS USED BORROWED FUND TO THE EXTENT OF RS . 7.04 CRORE FOR THE PURPOSE OF INVESTMENT IN OTHER COMPANIES AS THERE IS NO INVEST MENT DURING THE YEAR IN THE SUBSIDIARY COMPANIES. TO THAT EXTENT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE ITSELF HAS DISALLOWED A SUM OF RS. 58,47,166/-. THE RELEVAN T FACTS AND FINDINGS RECORDED BY THE ASSESSING OFFICER ARE IN PARA 5.4 TO 5.8 AS UNDER:- 5.4. THE ABOVE SUBMISSION MADE BY THE ASSESSEE IS C AREFULLY PERUSED AND CONSIDERED AND FOUND NOT ACCEPTABLE. AS CAN BE SEEN FROM THE BALANCE SHEET, THE ASSESSEE'S INTEREST BEARING BORROWED FUNDS ARE TO T HE TUNE OF RS. 4521.18 LAKHS, AND OWN CAPITAL OF RS.2417.82 LAKHS. AS AGAINST THIS , TOTAL INVESTMENT IN SHARES AND SECURITIES IS TO THE TUNE OF RS.3939.09 LAKHS. I T IS ALSO NOTED FROM THE P&L ACCOUNT THAT OTHER THAN PROFIT ON SALE OF INVESTMEN T, THE ONLY INCOME EARNED BY THE ASSESSEE IS ON ACCOUNT OF INTEREST RECEIVED ON BANK FIXED DEPOSITS AND DIVIDEND INCOME. THEREFORE IT CANNOT BE SAID THAT N O EXPENDITURE DEBITED TO P&L ACCOUNT IS ATTRIBUTABLE TO INVESTMENT. I AM, THEREF ORE, NOT SATISFIED WITH THE ASSESSEE'S CONTENTION THAT NO EXPENSE IS RELATED TO EARNING OF EXEMPTED INCOME ON ACCOUNT OF INVESTMENTS MADE. I THEREFORE PROCEED TO MAKE DISALLOWANCE U/S. 14A OF THE I.T. ACT READ WITH RULE 80 OF I.T. RULES . 5.5 IT IS ALSO NOTED THAT DURING RELEVANT PREVIOUS YEAR THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF M/S. RESEARCH MINES AND MIN ERALS LTD., AMOUNTING TO RS.779.62 LAKHS AND INTEREST RELATING TO SUCH INVES TMENT AMOUNTING TO RS.58,47,166/- WAS CAPITALIZED WITH THIS INVESTMENT. IN VIEW OF PROVISION CONTAINED IN SECTION 14A OF THE I.T. ACT, IT WAS RE QUIRED ON THE PART OF THE ASSESSEE INDIA NIVESH LIMITED, 7 | P A G E TO DISALLOW THIS INTEREST EXPENDITURE. HOWEVER INST EAD OF DOING SO, THE ASSESSEE CAPITALIZED THE SAME WITH THE INVESTMENT, THE RESU LT OF THE SAME WILL BE THAT AT THE TIME OF SALE OF THIS INVESTMENT, CAPITAL GAINS ARISING SHALL BE LESS TO THE EXTENT OF INTEREST CAPITALIZED, RESULTING INTO AVOIDANCE O F DUE AND LEGITIMATE TAX. INVESTMENT IS A CAPITAL EXPENDITURE WHEREAS INTERES T EXPENSES IS IN THE NATURE OF REVENUE EXPENDITURE AND BOTH CANNOT BE CLUBBED TOGE THER UNDER THE SAME HEAD. ASSESSEE'S CLAIM OF CAPITALIZATION OF INTEREST THER EFORE IS NOT IN ACCORDANCE WITH LAW AND REQUIRED TO BE REJECTED. HOWEVER, BEFORE DO ING SO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SPECIFICALLY A SKED TO EXPLAIN WHY THE SAME SHOULD NOT BE DONE. IN RESPONSE, ASSESSEE'S REPRESE NTATIVE VIDE LETTER DT. 11/11/2011 SUBMITTED AS UNDER: IN RESPECT OF INTEREST CAPITALIZED UNDER SHARES OF RESURGENCE MINES IT IS SUBMITTED THAT SINCE THE AMOUNT OF INTEREST IF NOT AT ALL CLAIMED IN THE PROFIT & LOSS ACCOUNT IT CANNOT BE DISALLOWED UNDER SECTION 14A. FURTHER IT IS SUBMITTED THAT SINCE SHARES OF RESURGENCE MINES WER E ACQUIRED OUT OF BORROWED FUNDS THE COMPANY HAS ADDED THE INTEREST A MOUNT PAID IN THE CARRYING COST OF INVESTMENTS. IN THIS REGARD IT IS SUBMITTED THAT INTEREST AMOUNT WHICH IS NOT CLAIMED IN P&L ACCOUNT IS ALLOW ABLE WHILE COMPUTING THE SHORT/TERM LONG TERM CAPITAL GAIN. RELIANCE IN SUPPORT OF THE SAME IS PLACED AS FOLLOWING DECISIONS:- A] CIT V. MITHILESH KUMARI (1973) 92 ITR 9 (DELHI) B] CITV. MAITHREYI PAI (1984) 18 TAXMAN 75 (KAR) 5.6 AS CAN BE SEEN FROM THE ASSESSEE'S SUBMISSION, THE ASSESSEE FAILED TO JUSTIFY AS TO HOW INTEREST CAN BE CAPITALIZED. THEREFORE IN VI EW OF THE ABOVE DISCUSSION, ASSESSEE'S INVESTMENT IN SHARES OF M/S. RESURGENCE MINES IS REDUCED BY RS.58,47,166/-. 5.7 WITH REGARD TO DISALLOWANCE U/S. 14A OF THE I.T . ACT, ASSESSEE'S REPRESENTATIVE VIDE LETTER DT. 24/12/2011 FILED COMPUTATION OF DIS ALLOWANCE COMPUTING AMOUNT DISALLOWABLE AT RS. 31,50,444/- [EXCLUDING RS.58,47, 166/-]. THE COMPUTATION SUBMITTED BY THE ASSESSEE IS PERUSED AND FOUND NOT SATISFACTORY SINCE NOT IN ACCORDANCE WITH RULE 80. THE SAME IS THEREFORE WORKE D OUT AS UNDER: 8D(2)(I) RS.891/- PLUS DIRECT INTEREST OF RS.167.17 LAKHS (AS DISCUSSED BELOW): AS STATED EARLIER, ASSESSEE'S INTEREST BEARING BORR OWED FUNDS AS ON THE BALANCE SHEET DATE IS AT RS.4521.18 LAKHS AS AGAINST LAST YE AR'S CLOSING BALANCE OF RS.3817.50 LACS. THUS THERE IS A NET ADDITION OF IN TEREST BEARING BORROWED FUNDS OF RS.703.68 LAKHS. AS AGAINST THIS BORROWED FUNDS, ASS ESSEE'S INVESTMENT AS ON THE INDIA NIVESH LIMITED, 8 | P A G E BALANCE SHEET DATE IS AT RS. 3939.09 LAKHS AGAINST PREVIOUS YEAR'S INVESTMENT OF 3169.39 LAKHS (DIFFERENCE RS.769.70 LAKHS). IT IS ALS O NOTED FROM THE BALANCE SHEET THAT DURING THE RELEVANT PREVIOUS YEAR ASSESSEE'S L OANS AND ADVANCES GIVEN HAS REDUCED BY AN AMOUNT OF RS.2538.54 LAKHS AND THERE I S INCREASE OF BANK DEPOSITS BY RS. 2641:15 LAKHS. THUS IT CAN BE EASILY SAID THA T THE ASSESSEE HAS SHIFTED THE AMOUNT FROM LOANS AND ADVANCES TO BANK BALANCE. IT I S FURTHER NOTED THAT ASSESSEE HAS RECEIVED INTEREST OF RS.236.52 LAKHS DU RING THE RELEVANT PREVIOUS YEAR. CONSIDERING ALL THESE FACTS, IT CAN BE SAID T HAT INTEREST EXPENSE ON BORROWED FUNDS RELATING TO CASH AND BANK BALANCE IS ATTRIBUTA BLE TO INTEREST RECEIVED. THEREFORE FOR THE TIME BEING INTEREST EXPENSE TO TH E EXTENT OF INTEREST RECEIVED OF RS.236.82 LAKHS IS CONSIDERED TO BE ON ACCOUNT OF IN TEREST RECEIVED. THE BALANCE INTEREST EXPENSE AMOUNTING TO RS. 167.17 LAKHS IS TH US DIRECTLY RELATE TO INVESTMENT ACTIVITY OF THE ASSESSEE COMPANY. THE SA ME IS THEREFORE DISALLOWED UNDER THIS HEAD. 8D(2)(II) THE ABOVE CALCULATION OF INTEREST EXPENSE IS UNDER THE PRESUMPTION THAT ENTIRE OWN CAPITAL OF THE ASSESSEE IS UTILIZED IN INVESTME NT. HOWEVER, IN THE ABSENCE OF ASSESSEE'S PROVING THE NEXUS OF OWN FUNDS WITH INVE STMENT, IT CANNOT BE SAID THAT ENTIRE OWN FUNDS HAVE BEEN UTILIZED IN INVESTMENT. THEREFORE THE BALANCE INTEREST OF RS.236.82 IS CONSIDERED UNDER THIS HEAD. THUS DISALLOWABLE WORKS OUT AS UNDER: 236.82 LAKHS X 3554.24 LAKHS / 6935.05 LAKHS = 121.37 L AKHS. 8D(2)(III) 0.5% OF AVERAGE INVESTMENT OF RS. 3554 .24 LAKHS = RS. 17.77 LAKHS 5.8 TOTAL DISALLOWANCE U/S. 14A READ WITH RULE 8D O F INCOME TAX RULES OUT TO RS. 306.31 LAKHS. HOWEVER, SINCE THE ASSESSEE HAS NO T DEBITED AN AMOUNT OF RS. 58.47 LAKHS, NET DISALLOWANCE OF RS. 247.84 LAKHS IS MADE TO THE TOTAL INCOME. 9. AS IT IS CLEAR FROM THE ORDER OF THE ASSESSING O FFICER THAT THE ASSESSING OFFICER HAS DISALLOWED A SUM OF RS. 167.17 LAKH ON ACCOUNT OF IN TEREST EXPENDITURE DIRECTLY RELATING TO THE INVESTMENT IN THE SHARES AND THEN AGAIN APPO RTIONED THE BALANCE INTEREST EXPENDITURE AS PER RULE 8D. IT IS PERTINENT TO NOT E THAT WHILE MAKING THE DISALLOWANCE U/S 14A AS WELL AS THE DIRECT INTEREST EXPENDITURE RELATING TO THE INVESTMENT ACTIVITY, THE ASSESSING OFFICER HAS NOT CONSIDERED THE FACT THAT THE INVESTMENT TO THE TUNE OF RS. 23.11 CRORE IS IN THE SUBSIDIARY COMPANIES FOR WHIC H NO DECISION MAKING PROCESS IS INDIA NIVESH LIMITED, 9 | P A G E REQUIRED FOR EACH YEAR BUT THE INVESTMENT IS A LONG TERM INVESTMENT MADE IN THE EARLIER YEAR. FURTHER THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF INTEREST EXPENDITURE IS ALSO NOT JUSTIFIED BECAUSE THE ASSES SING OFFICER HAS FIRST ESTIMATED THE DIRECT INTEREST EXPENDITURE AND THEN ALSO DISALLOWA NCE UNDER RULE 8D BY TAKING INTO CONSIDERATION THE ENTIRE INVESTMENT. EVEN THE CALCU LATION MADE BY THE ASSESSING OFFICER FOR APPORTIONMENT OF INTEREST EXPENDITURE FOR EARNI NG THE TAX FREE INCOME IS NOT AS PER RULE 8D(2). THEREFORE, THIS ISSUE REQUIRES RECONSID ERATION AT THE LEVEL OF ASSESSING OFFICER BY CONSIDERING THE ASPECTS OF INVESTMENT IN SUBSIDIARY AS WELL AS APPORTIONMENT OF INTEREST AND DIRECT EXPENDITURE BY TAKING INTO CO NSIDERATION ALL THE RELEVANT FACTS AS DISCUSSED ABOVE. HENCE WE SET ASIDE THIS ISSUE TO T HE RECORD OF THE ASSESSING OFFICER TO RECONSIDER AND DECIDE IT AFRESH IN THE LIGHT OF DEC ISION OF THIS TRIBUNAL IN THE CASE OF GARWARE WALL ROPES LTD VS. ACIT (SUPRA) AND AS PER L AW. 10. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E. 1 3/08/2014 SD/- SD/- (RAJENDRA) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 13-8 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI